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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: rjm2 who wrote (11892)	1/17/2001 8:49:33 PM
From: Don Earl	Read Replies (1) \| Respond to of 78633

rjm, The paragraph above the one you quoted reads as follows: "The domestic video retail industry includes both rentals and sales of videocassettes; however, the majority of revenue is generated through the rental of prerecorded videocassettes. There are three primary pricing strategies that the movie studios use to influence the relative levels of videocassette rentals versus sales. First, videocassettes can be priced at relatively high levels, typically between $60 and $75 ("rental priced movies"). These movies are purchased by video specialty stores and are promoted primarily as rental titles. Second, videocassettes can be priced at relatively low levels, typically between $5 and $25 ("sell-through movies"). These movies are purchased by video specialty stores and generally promoted for both rental and new videocassette sales. Third, movie studios have developed revenue sharing and other copy depth programs. Movies purchased under revenue sharing and other copy depth programs result in larger quantities available to meet consumer demand. Movie studios attempt to maximize total revenue from videocassette releases via the combined utilization of all three pricing structures." The paragraph related to amortization policy reads as follows: "Effective July 6, 1998, the Company changed its method of amortizing videocassette and video game rental inventory. The new method accelerates the rate of amortization and was adopted as a result of an industry trend towards significant increases in copy-depth availability from movie studios, which have resulted in earlier satisfaction of consumer demand, thereby, accelerating the rate of revenue recognition. Under this method, the cost of base stock videocassettes, consisting of two copies per title for each store, is amortized on an accelerated basis to a net book value of $8 over six months and to a $4 salvage value over the next thirty months. The cost of non-base stock videocassettes, consisting of the third and succeeding copies of each title per store, is amortized on an accelerated basis over six months to a net book value of $4 which is then amortized on a straight-line basis over the next 30 months or until the videocassette is sold, at which time the unamortized book value is charged to cost of sales. Video games are amortized on a straight-line basis to a $10 salvage value over eighteen months." "At January 2, 2000, the Company had a working capital deficit of $12.9 million, due to the accounting treatment of its rental inventory. Rental inventory is treated as a noncurrent asset under generally accepted accounting principles because it is a depreciable asset and is not an asset which is reasonably expected to be completely realized in cash or sold in the normal business cycle. Although the rental of this inventory generates the major portion of the Company's revenue, the classification of this asset as noncurrent results in its exclusion from working capital. The aggregate amount payable for this inventory, however, is reported as a current liability until paid and, accordingly, is included in working capital. Consequently, the Company believes that working capital is not an appropriate measure of its liquidity and it anticipates that it will continue to operate with a working capital deficit." As for comments stolen from another MOVI holder, I'll bet you a cookie without even looking the comment came straight off a Yahoo message board. The insider buys were all token purchases and the last one was in June. I see two entries listed as "received as gift" to the tune of 2.7 million shares each. Mighty generous of someone. I would consider the threat of video on demand to be the least of your worries. You obviously like the stock and I honestly hope you do okay with it. I don't see how a company with negative working capital can viewed as a value play, but if you can squeeze profits out of it, more power to you.